Q. With the iPod doing so well, it seems to me that the prospects for Apple Computer Inc. look good. What is your opinion of the company? P.J., via the Internet
P.J., via the Internet
A. Many investors are taking a shine to this Apple.
Earnings of the innovative company run by the legendary Steve Jobs tripled to $61 million in its most recent quarter, thanks to success of both its iPod digital music player and Macintosh computers. During the quarter, it sold 860,000 iPods and 876,000 Macintoshes.
No wonder shares of Apple (AAPL) are up 51 percent this year, following a 49 percent increase last year.
More than 3 million iPods have been sold since their introduction in fall 2001 and more than 100 million songs have been downloaded from the iTunes Music Store. The iPod mini, a smaller version of the iPod that is about the length and width of a business card, is now being shipped to Europe.
While iPod holds more than half the U.S. market share for hard-drive-based audio players, the competition is heating up.
Sony recently unveiled its Network Walkman designed to compete directly with iPod. Dell Computer has run a promotion giving customers $100 off on some of its Dell Digital Jukebox music players if customers send in their old iPods.
Although Apple’s unique image keeps it out of computer price wars with competitors, the fact remains that the Macintosh is more expensive than other personal computers. This could especially become a problem for many cash-strapped schools that use Apple products.
Apple recently experienced delays in producing the new iMac desktop computer and its introduction was postponed until September. That’s two months later than planned and means it will miss the important back-to-school season.
The consensus analyst recommendation on Apple shares is a “buy,” according to the Boston-based Thomson First Call research firm. This consists of five “strong buys,” seven “buys” and six “holds.”
Apple’s expected earnings growth rate for this year is 225 percent (that astronomical increase is due to last year’s low earnings) versus the 17 percent forecast for the computer hardware industry.
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Its expected growth rate for 2005 is 35 percent, compared with the 21 percent projected industrywide.
The five-year annualized growth rate is expected to be 15 percent, versus the 12 percent forecast for its peers.
Q. I’m considering investing a small amount in T. Rowe Price Equity-Income Fund. What’s the outlook for this fund?
F.M., via the Internet.
A. If you’re as conservative as you sound, this fund should be right up your alley.
It emphasizes stocks that pay above-average dividends and holds them for a long time. Furthermore, its annual expense ratio of 0.78 percent is far lower than most large value funds.
The $13.6 billion T. Rowe Price Equity-Income Fund (PRFDX) is up 16 percent over the last 12 months to rank in the upper one-third of large-value funds. Its three-year annualized return of 3.6 percent places it in the upper 15 percent of its peers.
“Portfolio manager Brian Rogers is highly experienced, having run the fund since its 1985 inception,” said Christopher Davis, analyst with Morningstar Inc. in Chicago. “His consistent strategy of looking for stocks trading at the lower end of their historical range and paying good dividends has made the fund a stellar performer over time.”
Only twice in 19 years has Rogers posted a calendar-year loss.
No fund is perfect, however. It is highly unlikely that this one will excel when the general markets are in a strong rally. Yet Davis considers it an outstanding long-term choice for investors looking for a large-value component to their portfolios.
Nearly 20 percent of the holdings in T. Rowe Price Equity-Income Fund are in financial services. Other significant concentrations are industrial materials, consumer goods, health care and energy.
This “no-load” (no sales charge) fund requires a $2,500 minimum initial investment.
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Andrew Leckey is a Tribune Media Services columnist. E-mail him at [email protected]